Abstract
On 4 December 1995, the Australian Stock Exchange reduced the minimum tick size for stocks priced below $A0.50 and stocks priced above $A10. We use this natural experiment to examine the impact of tick size reductions on liquidity. The present paper reports that although lower tick sizes generally lead to increased liquidity, this result is not universal. Stocks with larger relative tick sizes experience the greatest improvement in liquidity, while stocks with small relative tick sizes and low trading volume experience reduced liquidity. There is no change in order exposure as a result of the reduced tick sizes.
| Original language | English |
|---|---|
| Pages (from-to) | 171-184 |
| Number of pages | 14 |
| Journal | Accounting and Finance |
| Volume | 45 |
| Issue number | 2 |
| DOIs | |
| Publication status | Published - Jul 2005 |
| Externally published | Yes |
Keywords
- Bid ask spread
- Liquidity
- Minimum tick size